Lenders typically look at loan structure fromeither a “cost” or “value” perspective. To structure real estate loans and determine the loan amount, they examine one, two, or all three of the following three ratios:





Lenders typically structure LTV off the lesser of the purchase price or appraised as-is value. For instance, if you buy a property for $200,000 but it’s worth $195,000, the LTV for your loan will be based on the $195,000 appraised value.

The LTV ratio is an assessment of lending risk that shows the size of a loan in relation to the total value of the property. Generally, the maximum LTV ratio in private lending is 85-90%.

Loan amount ÷ appraised property value/purchase price

Loan-to-Value (LTV)

Lenders won’t use ARV if they don’t know what renovations you’ll do. Create a specific and itemized budget and SOW to show them how you’ll increase the property’s value.

After repair value refers to the value of a property after renovations and improvements. ARVs are only used when you plan to renovate a property.

Loan amount ÷ (Purchase property price + renovation value)

After-Repair-Value (ARV)

Lenders calculate costs differently. It also varies

LTC measures the percentage of a real estate investment deal’s cost that’s financed by a loan. It’s a way to include acquisition, rehab, and construction costs in a loan.

between single family and multi- family loans. Some multi-family loans factor in transaction costs, like lender fees and title fees. Ask to get clarity.

Loan-to-Cost (LTC)

Loan amount ÷ total project cost

loan’s leverage based on items related to the asset, such as the amount of rehab versus the purchase price. They’ll even look at restrictions due to geographic regions or asset types. The factors that impact leverage are so vast we could write an entire article on this topic alone!

Know that lenders like to see “skin in the game.” When you are willing to commit your own funds toward a project, lenders don’t take on as much risk — statistically speaking. After all, they’ve seen the data from the years leading up to the Housing Crisis. The lower the down payment, the more likely a default was. If you’re searching for max leverage in scaling your real estate operation, understand that private lenders will always use the lesser of two calculations when sizing your loan. For instance, if your LTC structured loan amount is $210,000, and the ARV is $280,000, and based on the aforementioned factors you can only go up to a max ARV of 70%, then loan sizing is restricted by ARV, since it is the lesser of the two structures, and thus you can only get a $196,000 loan. When underwriting a loan, lenders will also change a


Though you can’t create a one-size-fits-all formula for getting your desired loan, you can increase your chances of maximizing leverage by knowing how private lenders operate. As you move ahead, pay attention to your borrower profile and continue to build a real estate portfolio that proves you can execute. When you apply for a

68 | think realty magazine :: april 2020

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